The Enterprise System Spectator

Sunday, July 31, 2005

SAP claims capture of 21 Oracle customers

The battle between SAP and Oracle continues. SAP announced earlier this month that it signed up 21 new customers last quarter under its Safe Passage program, which provides incentives for Oracle customers to jump ship to SAP.

Thursday, July 28, 2005

Sarbanes-Oxley: stop the insanity

It's been about eight months since the internal control requirements (Section 404) of the Sarbanes-Oxley Act (SOX) first went into effect. Up to that deadline, and since then, SOX compliance has become a front-burner issue for the CIOs of publicly-held companies.

One can imagine that in some companies, the SOX compliance effort has uncovered serious deficiencies in internal controls that otherwise might have been found. If readers know if such cases I would love to hear about them, because from what I've seen and heard, SOX compliance has not been a meaningful exercise.

One company now requires the CFO to personally hand out payroll checks to its employees, instead of allowing the payroll manager to do so.

Another company failed a SOX audit because auditors found that a sales rep only needed one signature instead of two to buy $15 worth of donuts for a client meeting.

Or, how about this example from Eaton, a $9.8 billion manufacturer? Apparently, its auditors decided that Eaton was at risk from loss of a back up computer server. So, it designed internal controls that included "taking digital photographs of the smoke detector in a backup server closet...and sending the auditors receipts for the batteries."

Automation seems to be taking a back seat to documentation. In the rush to build internal controls in time to meet SOX 404 deadlines, companies are creating reams of documentation on paper and in network folders. In some cases, processes that were automated prior to SOX are now being complemented by paper-intensive manual processes, just for the sake of generating audit trails.

Software vendors are quick to encourage the insanity, and will look to charge top dollar if they believe that compliance is the driving factor in the purchase of a particular product.

For example, a reader, who wishes to remain anonymous, gave me some insight on Virsa, a small vendor that provides software to enforces segration of duties within an ERP system (e.g. a user that is authorized to generate purchase orders should not also have rights to authorize vendor payments.) Virsa was content to sell its product last year for $75,000 to $100,000. But that was before they formed a partnership with SAP to resell Virsa's product. According to my source,

SAP's U.S. reps now offer this exact same (and fairly basic) product for around one million dollars. Quite the cunning scam.

The funny thing is, as soon as SAP reps selling the Virsa product are asked by customers about competing products, the price drops, sometimes even down to zero, just to get the deal. But that's the point: SAP/Virsa rest their hopes on customers doing NO due diligence when purchasing compliance software. Instead they tout a close SAP relationship as key.

It's similar to rug dealers in Turkey who start at an absurdly high price in the hope of tricking an ignorant tourist into massive overpayments. The U.S. SAP reps must hope that a one million dollar line item on the bill will go unnoticed by CIOs with large budgets. But it's still a scam nevertheless.

So, what's the result of all these expenditures of time, money, and effort? Are financial reports of public companies much more trustworthy? Are business risks being better managed?

The question is not trivial. Every dollar wasted on meaningless compliance is a dollar not spent taking real actions to mitigate real risks to the business.

In practice, new initiatives have gone right out the door at many companies. Project after project has been postponed or canceled in order to focus on ensuring Sarbox compliance. William Zollars, CEO of Yellow Roadway, the largest trucker in the United States, says that "it requires an army of people to do the paperwork." In addition to diverting some 200 employees to work on Sarbox in the fourth quarter of 2004, Zollars spent $9 million — more than 3 percent of his firm’s annual profit — on outside accountants and auditors. But Yellow Roadway may be getting off cheaply, as Business Week puts the average large-company compliance price tag at upward of $35 million.

If you've got your own story of SOX insanities, please post a comment on this article, or email me.

Saturday, July 23, 2005

Trend toward offshore outsourcing not yet peaked

A recent survey of visitors to the Computer Economics website asked respondents regarding the offshore outsourcing plans of their organizations. For IS professionals hoping for a reversal of the trend toward offshoring, the results aren't good.

Thursday, July 21, 2005

Corporate policies regarding use of personal webmail accounts

There's a new monthly survey running at Computer Economics on corporate policy regarding employee use of personal web-mail accounts, such as Yahoo and Hotmail. If we get enough responses, we'll post an article on the results.

Tuesday, July 12, 2005

Oracle reassures JDE resellers

At an Oracle JDE reseller meeting last week, Oracle's tri-President, Charles Phillips, tried to encourage J.D. Edwards resellers that Oracle means business in helping them to sell JDE to small and mid-sized businesses (SMBs).

Resellers who attended the summit Thursday expressed concern about whether they would have a free hand to market their services to SMBs, despite assurances to the contrary.

In particular they want some assurances that they will get at least the same level of sales opportunities that they had before the PeopleSoft buyout.

To be fair, Oracle is doing the JDE resellers a big favor by raising the bar that defines the market to which the resellers can deal, to companies under $500 million in annual revenue, up from $100 million last year. Interestingly, however, Oracle resellers of its E-Business Suite continue to operate under a $100 million bar. This means that when a JDE reseller goes after a prospect between $100 million and $500 million, there's a good chance it will be facing an Oracle direct sales rep.

The JDE resellers are concerned, no doubt, that when the Oracle direct sales force and a JDE reseller are in the same deal, the gloves may come off. At an executive breakfast with Charles Phillips earlier this year, I asked him about the potential for channel conflict. His response was that it would be the customer's choice as to which way the deal would go--a good response. But the real test will come when a few such scenarios materialize--how aggressively will Oracle allow the direct sales rep to discount versus the JDE reseller? I haven't seen such a scenario yet, but I'm sure I will within the next year.

Saturday, July 09, 2005

Salesforce.com struggling at Cisco

It appears that Salesforce.com is having a bit of trouble in its biggest deal to date: a 10,000 user rollout for Cisco.

According to research firm JMP Securities, "our due diligence suggests that Cisco has only deployed 1,000 seats in the time that it had expected to deploy 10,000." Apparently there are problems with users embracing the system and issues with integration with other Cisco sales systems.

Adding insult to injury, JMP's research note also indicates that CRM leader Siebel is still a force to be reckoned with. Specifically, Siebel is working on a $30 million, 75,000 seat deal with a financial services institution where Siebel's own On-Demand offering will co-exist with or replace Salesforce.com.

CRM projects--especially large rollouts in large companies--are notoriously difficult. Gaining user acceptance and managing changes in desired behavior are particularly challenging. I have maintained in the past that the low initial cost and rapid implementation characteristics of software on-demand are particularly well-suited for CRM. But the problems of Salesforce.com at Cisco show that software on-demand is not a panacea.

Friday, July 08, 2005

Linux in a mission critical high transaction processing application

Anyone who thinks that Linux is not ready for mission-critical applications should read this article in CIO Magazine about the experience of Cendant Travel Distribution Services, the parent company of Orbitz and CheapTickets.com, and its CIO, Mickey Lutz.

Lutz's IT group rewrote a complex, real-time airline pricing application that serves hundreds of thousands of travel agents around the world and that also acts as the system of record for all of United Airlines' ticket reservations. When this application came up on Linux, it proved to be so demanding—it handles up to 700 pricing requests per second—that it completely redefined Cendant's expectations about what it would take to get Linux to work. "We have broken every piece of software we've ever thrown at this platform, including Linux itself," says Lutz.

That has resulted in some scary moments, including an initial slowdown in the system that left United Airlines agents intermittently unable to access the reservation application (one outage lasted about 45 minutes) over the course of four days in July 2003. If you are United Airlines and move roughly 8,000 passengers per hour, you need the computers to work all the time. "Even a little downtime is a big deal," admits Lutz.

Although there were some major bumps along the road, Lutz believes that the gamble on Linux was worth it. Cendant successfully converted the system from four IBM mainframes to a 12 server Linux cluster of 144 Intel boxes. The cost of the system dropped from $100 million to $2.5 million per year.

Interestingly, Lutz is no open source zealot. He "professes no interest in, nor understanding of, the mechanics of the open-source movement." It is "irrelevant to him, because the software can run his infrastructure, and he can buy enough support for it from vendors."

Thursday, July 07, 2005

Oracle beefs up retail offerings with ProfitLogic bid

Earlier this year, Oracle made a strategic move deeper into the retail distribution industry by winning a bidding war with SAP for Retek, a niche vendor of retail management software. Now Oracle is adding to its retail presence by reaching a deal to acquire ProfitLogic. Terms of the deal are not disclosed.

ProfitLogic is one of a handful of vendors focusing on pricing and profit optimization, although many other terms are used. Essentially, these are analytic applications that analyze demand patterns and optimize pricing by SKU by selling location in order to optimize revenue and gross margins. The goal is to adjust prices downward where consumers are price sensitive, in order to increase volume, while raising or maintaining prices where consumers are not price-sensitive, in order to maximize margin. Deciding which SKU in which store is in which category is not a trivial exercise, and it is not always intuitive.

In the past, such decisions were made by retail buyers, who examined sales data and relied on gut feeling developed from long years of experience. But with the typical retailer managing thousands of SKUs over dozens of stores, an expert buyer can only deal with a fraction of the pricing decisions that need to be made in order to maximize revenue.

Retailers that have implemented these systems claim remarkable results in a short timeframe, making the ROI on these solutions very attractive. Yet, the market is fragmented, with niche vendors such as ProfitLogic, DemandTec, KhiMetrics, Manugistics, Spotlight, Connect3, and Vendavo competing in this space. Larger supply chain vendors have also added this functionality to their suites, as Manugistics did with its acquisition of Talus in 2000.

With the market for these solutions fragmented, and the ROI attractive, Oracle's bid for ProfitLogic might be the first of several in this space.

Monday, July 04, 2005

Computer Economics IS spending study now available

At Computer Economics, we've just finished our 16th annual Information Systems Spending and Technology Trends study. Although I've been using this study myself for several years, this is the first year that I've actually been involved in producing it.

It was quite a job: a six month effort based on our detailed survey of nearly 200 business and information systems executives in private industry and government regarding their level of IS spending, staffing, and technology utilization. This year's study includes 17 chapters with over 450 tables and charts of detailed statistics, broken down by industry sector and size of organization.

The study is used by individual corporations and government agencies to benchmark the spending, staffing, and performance of their own IS organizations. It is also used by major consulting firms as a source of industry benchmarking data.

Friday, July 01, 2005

Oracle boasts strong growth in apps business

Oracle announced a 24% rise in revenue for its fourth quarter, which it attributed to its merger with PeopleSoft and strong growth across all product lines. Oracle reported revenue of $3.88 billion and a 3.2% rise in profits. North America license revenue was up 39%, and there was particular success in small and mid-size deals.

Although the numbers exceeded Wall Street expectations, they may not be as strong as they first appear. The reason is that Oracle refused to indicate how much revenue came from the Oracle side and how much came from the PeopleSoft side. Without that information, it's impossible to know the true growth rate until a quarter to quarter comparison can be done for the merged company--in other words, next June.

According to BusinessWeek, Oracle's revenue was actually slightly less than if Oracle and PeopleSoft had remained independent.

Tellingly, Oracle co-President Safra Catz said that it was "irrelevant" to separate out license revenue from sales of Oracle's products versus those of PeopleSoft. "We really merged the sales organization entirely," she said. "There are no PeopleSoft salesmen or Oracle salesmen."

Trust me: Oracle knows exactly how much of each product it sold. Why would it not want to talk about that? Since Oracle won't say, I'll speculate: sales of PeopleSoft products were weak and Oracle had to make it up on the Oracle side.

One problem that Oracle might be having is that during its fight for PeopleSoft, PeopleSoft was making huge discounts in order to keep its revenue numbers up. That would have pulled in deals from future periods, which drained the pipeline. I suspect that Oracle may have been doing a little bit of the same thing to get the results that it got last quarter. Oracle is normally more disciplined than most vendors in not rewarding prospects that wait to sign until the last day of the quarter. But I did hear that Oracle was offering some pretty aggressive discounts a couple of weeks ago.

Combine the drained pipeline with the natural wait-and-see attitude of PeopleSoft customers after the acquisition, and you can envision why sales on the PeopleSoft side might have been problematic. This might explain, in part, why Oracle was so interested in rebuilding and expanding the J.D. Edwards reseller channel earlier this year--to do anything it could to bolster the PeopleSoft side and thus justify the acquisition.

For Oracle and PeopleSoft users the message is clear: if you've been planning some additional license purchases, or implementing some additional modules, understand that Oracle might continue to be in the mood to deal. Name your price--you might be surprised.

I'm interested in hearing about best practices, lessons learned, horror stories, and case studies of success or failure.

Selecting a new enterprise system can be a difficult decision.
My consulting firm, Strativa, offers assistance that is independent and unbiased.
For information on how we can help your organization make and carry out these decisions, write to me.

My IT research firm, Computer Economics provides metrics for IT management, such as IT spending and staffing benchmarks, technology adoption and investment trends, IT management best practices, IT salaries, outsourcing statistics, and more.